Art investment has always held a special fascination for collectors, enthusiasts and investors. The debate over whether an artist’s work is more profitable when dead or alive continues to spark curiosity in the art world.
Although it may seem logical that the value of their artwork will rise after death, recent research suggests otherwise. In this article, we explore the complexities of art investment and look at the factors influencing prices before and after an artist’s passing.
Traditionally, the “death effect” has been associated with an increase in the value of an artist’s work after their passing. Art dealers and galleries have taken advantage of this perception for profit – but research economists Robert B. Ekelund and John D. Jackson provide a different point of view – they argue that the death effect is not observable after an artist’s passing but manifests in the five years leading up to their death.
Ekelund and Jackson suggest that the death effect in art pricing is caused by a buyer’s expectations of an artist’s future output. As artists get older, scarcity is created due to the assumption that their production won’t be abundant; consequently, this can lead to prices going up. Collectors anticipate that there will be less supply coming from these ageing creators, preserving value for existing pieces they own.
To gain insight into the dynamics of art investment, it is essential to consider how supply and demand work together. Demand for an artist’s work can be determined by multiple elements, such as critical acclaim and institutional backing; however, it is mainly driven by the artists themselves when determining the quantity of their available works.
As an economic concept, artists can be viewed as monopolists who possess exclusive control over the production and distribution of their art. Nobel Prize-winning economist Ronald Coase’s theory on ‘Durability and Monopoly’ highlights a monopolist’s power to maintain consistent prices in the market. By assuring buyers that the market will not be flooded with an excessive supply of artworks, the monopolist can create an environment of price stability.
Ekelund and Jackson proposed an updated idea known as the ‘betting on a forthcoming funeral effect’. This concept implies that, before an artist’s death, there is likely to be a rise in prices for their artwork. This is due to buyers speculating on future rarity caused by limited availability. As such, anticipating an artist’s passing leads to heightened demand and, thus, higher costs associated with acquiring their work.
Despite the traditional idea of a “death effect” driving up prices for an artist’s works after their passing, it is impossible to predict how the supply dynamics will change once they are gone. Collectors may flood the market with artworks and estates, or dealers might release many pieces all at once, which could lead to a sharp decline in price.
To test their hypothesis, Ekelund and Jackson analysed auction records for 17 American post-war artists who died between 1987 and 2013. They found a consistent pattern in the prices of artworks leading up to an artist’s death. On average, prices steadily increased in the five years preceding an artist’s passing and then experienced a significant drop in the year of their death.
The researchers considered variables such as artwork size, artist age, and medium to identify the influence of the death effect. To their surprise, they found that an artist’s age at passing had no bearing on its occurrence; whether it was Jean-Michel Basquiat, who died prematurely at 27 or Agnes Martin and Andrew Wyeth, who both lived until 92, there still seemed to be a discernible death effect.
The death of an artist can offer insight into the pricing dynamics surrounding their artwork, but it is equally important to consider other factors that could potentially influence art prices. Critically acclaimed pieces, museum exhibitions and ownership by esteemed collectors or institutions can all contribute to the demand for an artist’s work and subsequently affect its value.
As an artist grows older, their physical capabilities may limit the production rate, leading to a sense of rarity and potentially driving up prices. On the other hand, artists who keep on creating artwork at a steady speed might find it challenging to sustain the value of their work. Therefore, output and productivity are two factors that greatly influence how much money an artist can make from their works.
Scholars Heinrich Ursprung and Christian Wiermann have researched the connection between an artist’s reputation, age, and prices – revealing a distinct “inverse U shape” pattern with price peaks around 70 years of age. This is when artists have been accepted by their peers but haven’t yet faded from memory; for older creatives especially, death often results in higher value attached to their work. On the other hand, younger artists may find that demand decreases after they pass away.
Ekelund and Jackson’s research backs up the concept of an inverse U-shape pattern, with prices for the analysed artists typically peaking at age 47. Yet they found that regardless of age, the death effect remained, indicating that limited availability is more influential than age itself.
Artists and their dealers often employ strategies to foster a feeling of rarity and limit the number of artworks. Take Robert Rauschenberg, for example; he frequently altered his styles or periods, which naturally restricted the availability of works from each style. Another way to make an artist’s works seem rare is by building museums during their lifetime like Pablo Picasso did – this significantly removes many pieces from circulation, intensifying the perception that supply is limited.
Dealers and artists can also craft agreements that give the dealer repurchase rights from collectors who prefer to offload their artwork instead of allowing it to enter the open market. Such strategies are vital in ensuring that artists don’t flood supply, thereby preserving the value of their artworks.
Once an artist is firmly established in the art historical canon, prices for their works can skyrocket. Demand rises alongside the diminishing supply, resulting in extraordinary prices. Examples like the sale of Leonardo da Vinci’s Salvator Mundi for $450 million or Jean-Michel Basquiat’s painting sold for $110.4 million demonstrate the extreme end of the art market where prices reach unprecedented heights.
Investing in art is an intricate and multi-layered process. The concept of the death effect has been a conventional wisdom for quite some time, but recent studies have put that into question. While scarcity due to decreasing availability before an artist’s passing may drive up their prices, what happens after death is not so easily predictable.
The reputation, age and productivity of an artist can all significantly impact the cost of their work. However, to truly excel at art investment, it’s essential to have a thorough knowledge of market trends, each artist’s development, and a keen insight into supply versus demand dynamics.
Navigating the art market requires a deep understanding of each artist’s unique career, contextualising their work within its time and space, and accounting for broader economic factors that shape the field. By weighing these complexities carefully, art enthusiasts can make informed decisions and find opportunities for both enjoyment and potential financial gain in the world of art investment.
At SVN Capital, we work with one of the world’s finest contemporary art galleries to offer our clients the chance to add art to their investment portfolios. This partnership ensures our clients are fully diversified and they have access to some of the world’s most coveted and exclusive contemporary art pieces.
